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A. O. Smith (AOS) to Report Q3 Earnings: What's in Store?

Zacks Equity Research

A. O. Smith Corporation AOS is scheduled to report third-quarter 2019 results on Oct 29, before market open.

The company delivered average negative earnings surprise of 3.45% in the trailing four quarters, missing estimates thrice. In the last reported quarter, the company posted earnings of 61 cents, which lagged the Zacks Consensus Estimate of 64 cents by 4.69%.

In the past six months, the company’s shares have declined 9% against the industry’s increase of 0.1%.

Let’s see how things are shaping up for this announcement.

Key Factors

A. O. Smith is likely to have benefited from its strong position in the defensive replacement market. Steady growth in the demand for water heater volumes in the commercial industry, and strong momentum of its North American boiler business are likely to have boosted the company’s top line in the third quarter.

Also, the acquisition of Water-Right (closed in April 2019), which has been strengthening the company’s growth opportunities in the water treatment industry, especially in the wholesale and independent dealer array, is likely to have augmented third-quarter revenues. In addition, benefits from the Aquasana buyout (closed in 2016), which has strengthened its global water treatment business and providing a solid direct-to-consumer platform, is likely to get reflected in the company’s upcoming results.

However, weak demand for residential water heater volumes in North America along with higher steel prices, softer sales of water heaters and air purifiers in China might have adversely impacted A. O. Smith’s third-quarter revenues. Also, the company has to spend considerable resources for the development of innovative products, quality improvement of existing product and integrating advanced technological changes. This might have increased its selling, general and administrative expenses and lowered margins.

Moreover, given A. O. Smith’s diverse geographic presence, its operations are subject to issues like forex, interest rates fluctuations and hyperinflation in some foreign countries. For instance, in the second quarter, the exchange rate fluctuation adversely impacted sales by about $16 million. A stronger U.S. dollar might have hurt the company's overseas business, particularly in China in the third quarter.

Amid this backdrop, the Zacks Consensus Estimate for revenues from A. O. Smith's North America segment is currently pegged at $542 million, indicating 11.3% growth from the year-ago reported number. The consensus estimate for revenues from Rest of the World stands at $219 million, suggesting a decline of 20.1%.

Earnings Whispers

According to our quantitative model a stock needs to have the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or at least 3 (Hold) to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

But that is not the case here as we will see below.

Earnings ESP: A. O. Smith has an Earnings ESP of -1.85% as the Most Accurate Estimate is pegged at 53 cents, lower than the Zacks Consensus Estimate of 54 cents.

A. O. Smith Corporation Price and EPS Surprise

A. O. Smith Corporation Price and EPS Surprise

A. O. Smith Corporation price-eps-surprise | A. O. Smith Corporation Quote

Zacks Rank: A.O. Smith carries a Zacks Rank #3 (Hold).

Key Picks

Here are some companies you may want to consider as our model shows that these have the right mix of elements to beat estimates this earnings season:

Plug Power, Inc. PLUG has an Earnings ESP of +58.33% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Welbilt, Inc. WBT has an Earnings ESP of +1.01% and a Zacks Rank of 3.

Sealed Air Corporation SEE has an Earnings ESP of +2.40% and a Zacks Rank #3.

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